1 INPUT TO THE AD HOC JOINT COMMITTEE ON ECONOMIC GOVERNANCE AND MANAGEMENT ON PROMOTING SOUND FINANCIAL MANAGEMENT PUBLIC SERVICE COMMISSION

2 Introduction The public expects government to operate in an open, transparent and accountable manner. This expectation includes effective accountability in respect of public funds, and the management of government programmes and services. The State and public servants are the custodians of public resources, and should administer public resources in an accountable and transparent manner on behalf of the entire citizenry. Effective accountability in respect of public funds is also one measure for strengthening the fight against corruption, but it will not make sense if acts of fraud and corruption are discovered and nothing is done on the matter. Chapter 10 of the PFMA defines financial misconduct, and deals with the procedures for disciplining those public officials found guilty of financial misconduct. It also includes a provision for criminal prosecution to apply where there is gross financial misconduct. In discussing sound financial management the PSC will focus on two areas that it is involved with, namely –  Promoting the constitutional principle that public administration must be accountable  Reporting on financial misconduct in the public service

3 Public administration must be accountable The Constitution in section 195 read in conjunction with section 196 provides for the PSC to promote the nine principles of public administration. One of these principles is that public administration must be accountable. The PSC issues an annual State of the Public Service Report in which it comments on the performance of the public service in respect of each of the nine constitutional principles. The comments of the PSC are based on the work that it has done in pursuance of its Constitutional mandate. The PSC commented as follows on the accountability of public administration in its 2005 State of the Public Service Report –  Departments continue to set over ambitious targets.  The work of public service entities should be better defined and performance indicators should be better formulated.

4  11 national departments received unqualified reports from the Auditor-General for 2003/4  This represents an increase from previous years  At provincial level the number of unqualified reports have decreased in the health, education and social development sectors from 51% to 37%  The PSC proposed, amongst others, that all public service institutions should have adequate control systems in place. Regular and accurate reports on progress in achieving targets should be provided in the public domain and key stakeholders should hold government accountable for performance and the use of public funds.

5 Reporting on financial misconduct As required by the Public Finance Management Act (PFMA) departments have been reporting finalized financial misconduct cases to the PSC since the 2001/2002 financial year. The analysis of this information has resulted in Reports on Financial Misconduct for the 2001/2002, 2002/2003, 2003/2004 and 2004/2005 financial years. Such reports have been critical in monitoring financial misconduct in the Public Service, and have served as important instruments to deepen accountability reporting. Recommendations from these reports have resulted in a prescribed format to report on financial misconduct, reporting on the amount involved in the financial misconduct and the recovery of the amount.

6 Legislative framework Section 85(1)(a) of the PFMA determines that the Minister must make regulations prescribing the manner, form and circumstances in which allegations and disciplinary and criminal charges of financial misconduct must be reported to the National Treasury, the relevant provincial treasury and the Auditor-General. Treasury Regulation 4.3 determines that the accounting officer must, as soon as the disciplinary proceedings are completed, report to, amongst others, the PSC on the outcome, including-  the name and rank of the official against whom the proceedings were instituted;  the charges, indicating the financial misconduct the official is alleged to have committed;  the findings;  any sanction imposed on the official; and  any further action to be taken against the official, including criminal charges or civil proceedings.

7 Statistical overview The number of officials charged with financial misconduct  The total number of reported finalized cases relating to financial misconduct for the previous four financial years are as follows: Financial yearTotal number of cases 2001/ / / /

8 Statistical overview (continued) Types of financial misconduct cases reported:  In terms of the PFMA, financial misconduct entails any material losses through criminal conduct, unauthorized, irregular, fruitless and wasteful expenditure.  The figure below gives an exposition of the types of financial misconduct reported by departments during the 2004/2005 financial year. Throughout the four financial years, cases in the Category: Fraud and theft were in the majority.

9 Statistical overview (continued) Levels of employees charged with financial misconduct  Throughout the four financial years, employees on salary levels 6 and 7 have committed the highest number of financial misconduct cases.  By far the largest number of financial misconduct cases is encountered at production level (Salary levels 1-8). This trend that applies throughout the four financial years could be ascribed to- greater financial pressures experienced by the lower income categories of staff; direct exposure to system related financial transactions with opportunities for fraudulent/illegal transactions presenting themselves on a daily basis; and potential influence from supervisors/senior officials.

10 Statistical overview (continued) Outcome of disciplinary cases  In those cases where charges were brought against employees, more than 70% of employees were found guilty of financial misconduct throughout the four financial years. Sanctions imposed in cases of financial misconduct.  In terms of section 38(1)(h) of the PFMA, the accounting officer of a department, must take effective and appropriate disciplinary steps against an employee in the department who commits financial misconduct. In the Public Service, disciplinary steps are taken against employees in terms of different procedures, depending on the legislation in terms of which such an employee is employed, e.g. the Public Service Act, 1994, the Police Act, 1995, and the Defence Act,  Dismissal is the most prevalent sanction throughout the four financial years, followed by final written warnings.

11 Statistical overview (continued) Cost of financial misconduct  Not all departments indicated the cost of financial misconduct. The total cost emanating from unauthorized, irregular and fruitless and wasteful expenditure and losses resulting from criminal conduct reported by departments and provinces from the 2001/2002 to the 2004/2005 financial years is reflected in the following Table: Financial yearFinancial cost 2001/2002R 4,176, /2003R 331,213, /2004R 20,351, /2005R 120,497,731.02

12 Observations and recommendations Inaccuracy in respect of information provided  Departments submitted incomplete information to the PSC.  For this purpose a prescribed reporting format was developed.  Departments should comply with the Treasury Regulations by reporting cases as soon as the disciplinary proceedings are completed. Erroneous information on financial cost and recovery of debt  As the reporting on the amount involved is not a prerequisite, the total cost of financial misconduct indicated in the PSC’s reports cannot be regarded as all inclusive of the total cost of financial misconduct.  National Treasury has been approached to consider amending the Treasury Regulations to include the cost of financial misconduct, as well as an indication of the amount recovered.

13 CONCLUSION When considering the statistics on financial misconduct in the public service, caution should be taken not to view it from a negative perspective Rather, the positive work that the public service is doing in combating corruption by effectively dealing with financial misconduct should be applauded. From the PSC’s perspective it would be more cause for concern if no or limited cases were reported.